MercoPress. South Atlantic News Agency

In spite of Katrina, US growth still “solid” says IMF

United States will suffer the bash from hurricane Katrina in growth terms but will recover. However the real estate boom, the surge in energy prices and financial misbalances are major risks, warns the IMF in its half year World Economic Report.

Growth forecasts for 2005 and 2006 stand at 3,5% and 3,3% in 2006 slightly lower that the previous estimates but still superior to those of its main trade partners and which IMF describes as "solid".

However Katrina "the costliest natural catastrophe in recent years" will have a short term impact in the US economy. Direct perturbations will be "weak" given the modest influence in the overall economy of the affected area and the massive reconstruction aid. But it musty also be remembered that the Gulf of Mexico area is for the petroleum sector and transport infrastructure.

This could have more indirect effects on consumption and investment because of the temporary increase in product prices, "mainly fuel and energy".

"Businesses and homes confidence remains healthy but if oil and refined goods prices keep increasing it could influence short term growth", points out the IMF report.

Further on there's praise for the Federal Reserve and its current policy of gradual interest rate increases to keep inflation under control.

"For the future a moderate combination of higher rates seems appropriate", says the report.

However there's growing concern with the "very low families savings rate" which is closely linked to the evolution of the real estate market.

Currently 18 states of the union which represent 40% of national GDP are undergoing a real estate boom, and the implications are considered "serious" because for the first time since 1970 the housing market boom has spread to the whole country.

"A boom does not necessarily end with a bust, but the recent surge in prices increased fears about the risks of a sudden correction in the market", which could have a damaging effect for the overall economy retracting consumption, cautions the IMF.

Other areas of concern are the double, budget and trade, US deficits plus the surge in oil prices.

US current account deficit should be above 6% of GDP in 2005 and "could remain at that level until the end of the decade", unless there's a strong drop in the US dollar value or an improvement in the budget performance.

The US government target of cutting the federal deficit by half in 2009 is described as relatively non ambitious and exposed to considerable risks, indicates the IMF report which calls for "a major adjustment effort" and the return to a balanced budget by 2010.

Finally the IMF raised its crude price average for 2005 to 54,73 US dollars the barrel and to 61,75 US dollars in 2006 which represents a 16,6% and 41% increase over estimates six months ago. The average barrel price is based on the West Texas Intermediate and Brent and Dubai crude.

Six months ago the IMF forecasted 46,50 US dollars per barrel for 2005 and 46,50 US dollars in 2006. The upward prices review reflect a major consensus that recent consumption levels will remain persistent and continue to absorb additional capacity production, states the IMF report.